2012 has drawn to a close. We chronicle here six of the most significant stories on the climate change front in the last six months. For those looking for hope that government is taking action to rein in greenhouse gas emissions, the focus is on California, where cap-and-trade stepped into reality with California's first emissions auction. Nationally and internationally regulation is at a standstill or going backward. In the courts, the climate change liability plaintiffs were pounded again as the Ninth Circuit confirmed the dismissal of Native Village of Kivalina v. ExxonMobil Corp. Responding to climate change, however, is a different story. Superstorm Sandy was a wakeup call on adaptation and the impacts of extreme weather; the National Flood Insurance Program managed to obtain statutory authority to include climate change in its considerations.
1. Superstorm Sandy – Climatologists are confident that the changing climate will lead to more frequent and more severe storms. Sandy, following Hurricane Irene the previous year, delivered on both predictions. A nine-foot storm surge at Battery Park. Transformers exploding and putting Manhattan into darkness. The Hoboken PATH station submerged. $50 billion in damage. Superstorm Sandy set records and was completely consistent with the concerns of proponents of climate change mitigation and adaptation. Did it have anything to do with climate change or was it simply a chance confluence of events? The weather pattern was unusual. There was a hurricane (albeit fading), coupled with a nor’easter, intersecting with an arctic high pressure front, under a full moon. Individually, those are independent of climate change. But there was also a record lack of sea ice, which has a measured and observed effect on global atmospheric circulation, which could result in severe weather coming together more severely. So quite possibly Sandy is a result of climate change. More important than the academic debate, however, is the impact on adaptation. Regardless of one’s views on climate change, Sandy demonstrated that a major metropolitan area is vulnerable to extreme weather. Steps will be taken to flood-proof subways, bury electric lines, raise seawalls, improve evacuation plans and emergency response, etc. All of these are part of the steps needed to adapt to climate change. Whether it is acknowledged as linked to climate change or not (but see Bloomberg Business Week cover following Sandy: “It’s Global Warming, Stupid!”), adaptation is going to happen.
2. Presidential Election - Climate change was an important part of the campaign: "The Obama-Biden cap-and-trade policy will require all pollution credits to be auctioned, and proceeds will go to investments in a clean energy future, habitat protections, and rebates and other transition relief for families." The 2008 election campaign that is. It was a completely different position in 2012. Or maybe not different at all. No one could tell because nobody was talking about it. Even Sandy wasn't enough to propel climate change into the debate in the last week of campaigning.
3. Native Village of Kivalina v. ExxonMobil - The last filed of the original quartet (American Electric Power, General Motors, Comer, and Kivalina) of climate change nuisance cases, Kivalina finally made it to a federal appellate court, where in September it met the same fate as its brethren: dismissal affirmed. Plaintiffs asked for rehearing. The Ninth Circuit wasn't interested. As of this writing, the only case left is Comer v. Murphy Oil USA, which is on appeal following its dismissal last March (for the second time) by the Southern District of Mississippi. According to that court, plaintiffs lose for a wide variety of reasons: standing, political question doctrine, res judicata, collateral estoppel, displacement, statute of limitations and proximate cause.
4. Cap-and-trade - California, alone among the fifty states, instituted its multi-industry full-fledged cap-and-trade program auctions in November. All of its allowances for 2013 were sold at a price slightly above the mandated floor price of $10/ton. Regulators and environmental groups hailed the auction as a success; some business groups were less enthusiastic. The California Chamber of Commerce sued the California Air Resources Board to invalidate the auctions. Meanwhile, the Regional Greenhouse Gas Initiative in the northeast continues with its allowances trading at the floor price, and with less than 2/3 of its allowances selling in its August and December auctions. Some commentary concludes that it is time for RGGI to shut down as its CO2 emission goals have been met. From where we sit, RGGI's success or failure can't be judged until its carbon trading is done in connection with a robust economy. The world economic malaise suppresses business, and with it, carbon dioxide emissions. California may face the same issue.
5. National Flood Insurance Program Reform - Could a poisonously partisan Congress vote for this:
(1) IN GENERAL- The Council shall consult with scientists and technical experts, other Federal agencies, States, and local communities to--(A) develop recommendations on how to--(i) ensure that flood insurance rate maps incorporate the best available climate science to assess flood risks; and (ii) ensure that the Federal Emergency Management Agency uses the best available methodology to consider the impact of--(I) the rise in the sea level; ..."?
Not the Congress we know. Or so we thought. Somehow, somewhere, someone put this into a draft, which made it into and out of a committee, ended up on the floor of both houses, survived two votes and came out as an enrolled bill for the president's signature. The president signed it into law in July. This was part of the miscellaneous section of the Moving Ahead for Progress in the 21st Century Act (aka the Transportation and Student Loan Bill), which may explain how this occurred. In any event, climate change considerations are statutorily mandated as part of the NFIP. 42 USC § 4101a(d)(1). We can expect a report by July 6, 2013. Id. § 4101a(d)(1)(B). Who'd have thunk?
6. Global GHG Regulation - COP-18, the Conference of the Parties to the United Nations Framework Convention on Climate Change, wrapped up in Doha, Qatar in the middle of December widely panned as ineffective. While it extended to 2020 the Kyoto Protocol addressing global greenhouse gas emissions, major nations (Canada, Russia, Japan and New Zealand) dropped out, and the United States continued to refuse to participate. Thus, only about fifteen percent of global emissions are now covered by the protocol (the EU and other European nations, as well as Australia, continue to support the protocol). Developing nations (whose emissions are not restricted by Kyoto) had hoped to obtain commitments for funding "climate finance" of $100 billion, but that did not occur either. One can see parallels between the Kyoto Protocol and the Western Climate Initiative and RGGI. In all three members have dropped out and the commitment to address greenhouse gas emissions waivers. The fiscal cliff was the focus at the end of 2012; climate change got short shrift. 2013 may establish that that was short-sighted.

Subchapter 10 Climate Change, Article 5, Sections 95800 to 96023, Title 17,
California Code of Regulations, to read as follows:
Article 5: CALIFORNIA CAP ON GREENHOUSE GAS EMISSIONS AND
MARKET-BASED COMPLIANCE MECHANISMS
Note: All text is new.
"All text is new." And so it is and so begins a new chapter in California's odyssey into the regulation of greenhouse gas emissions, which began over 5 years ago with the passage of AB 32, the Global Warming Solutions Act of 2006. Under that law, greenhouse gas rules - including market controls - adopted by the California Air Resources Board are required to take effect by January 1, 2012. Thus, market control regulations - a cap and trade program - were adopted unanimously by the CARB on October 20 and submitted to the Office of Administrative Law by last Friday, October 28.
Cap and trade has two parts. What does the cap look like? The CARB's implementing resolution explains that the regulation
"Establishes a declining aggregated emissions cap on included sectors. The cap starts at 162.8 million allowances in 2013, which is equal to the emissions forecast for that year. The cap declines approximately 2 percent per year in the initial period (2013–2014). In 2015, the cap increases to 394.5 million allowances to account for the expansion in program scope to include fuel suppliers. The cap declines at approximately 3 percent per year between 2015 and 2020. The 2020 cap is set at 334.2 million allowances[.]"
An "allowance" is a "limited tradable authorization to emit up to one metric ton of carbon dioxide equivalent." Cal. Code Regs. tit. 17 § 95802(a)(8). Initially large industrial facilities will receive a free allocation, with auctioned allowances to come. Electric utilities will receive their allowances for free, with ratepayers to receive the benefit of the value of those allowances.
Trade is what one does if one does not have the right number of allowances. Allowances can be bought and sold in the present, or banked for future needs (such as to guard against shortages and price swings), or even retired.
Let there be no mistake. This is not a small program. The regulations run on for 260 pages with 43 pages of definitions. They cover 350 businesses operating 600 facilities. By 2013 electric utilities and certain large industrial facilities will be obligated to comply. Distributors of transportation, natural gas and other fuels will see themselves subject to regulation in 2015. California's goal is to return to 1990 levels of greenhouse gas emissions by 2020. The cap and trade program "sets a statewide limit on sources responsible for 85 percent of California’s greenhouse gas emissions, and establishes a price signal needed to drive long-term investment in cleaner fuels and more efficient use of energy."
The program is comprehensive. Besides specifying the calculation of allowances and describing the operation of allocation and auction schemes, the program also sets forth in detail the use of offsets ("a GHG emission reduction or GHG removal enhancement that is real, additional, quantifiable, permanent, verifiable, and enforceable" Cal. Code Regs. tit. 17 § 95970). Perhaps most interesting because it suggests a self-replicating paradigm in the minds of the California authorities, is the set of provisions recognizing "compliance instruments from external GHG emission trading systems." Cal. Code Regs. tit. 17 §§ 95940-43. In other words, if a cap and trade program is implemented elsewhere, California can take notice and give credit. And since that will enhance business activity with California, other jurisdictions (such as those in the Western Climate Initiative and in Canada) have an incentive to replicate California's model.
Will any of this work? CARB will not learn by happenstance. Its implementing resolution requires annual updates, which will measure, among other things the effectiveness of the cap-and-trade program, its stimulation of investment and innovation in clean technology, shifts in transportation fuel use and supply, the working of offset protocols, carbon capture and sequestration technology, and, last but not least "federal greenhouse gas activities, including federal equivalency for a State program." Our last post concerned a House bill that forbade American air carriers from participating in the the EU Emissions Trading System (Europe's cap and trade program). We wonder what the response in Washington will be to these efforts by the world's eighth largest economy? We suspect they will tread gingerly and note that California voters had a chance to rein in AB 32 last November but rejected a ballot initiative (Proposition 23) that would have done just that.

There are a variety of metrics one could use to test the world's interest in the discussions being held by climate change policymakers gathering in Cancun this week. I will use a very personal one. As the Conference of the Parties came together in Copenhagen last year (COP 15), I was often on the phone with news organizations seeking perspective on the Kyoto Protocol, clean development mechanisms, carbon taxes, cap-and-trade and anything else that might be relevant to discussions of climate change and the world's response to it. This year in the run up to COP 16 not a single journalist has called, or even emailed. Taking a less parochial view, if you go to the United Nations Framework Convention on Climate Change "Essential Background" webpage, you will learn right in the middle of the page that Somalia is the 193rd party to the Kyoto Protocol, a fact that I feel confident in concluding will have absolutely no impact on any climate change response anywhere (even in Somalia), but which the UNFCCC functionaries conclude is essential background.So I join in the cynics that conclude little will come out of Cancun. Some are calling for a completely new attitude to climate talks. Yesterday's Wall Street Journal for example stakes out four new positions in an article styled: How to Change the Global Energy Conversation. Briefly, the authors posit that the approach that has been tried for two decades, and failed for two decades, has it all wrong. Rather than trying to raise the cost of fossil fuels, governments would be focusing on lowering the cost of renewable energy by spurring innovation. They point out that the U.S. military's support of chip technology innovation in the 50s drove those prices down 50-fold over the course of a decade. While those clean technologies are developing, greenhouse gases should be reined in through the easy fixes, such as replacing old inefficient diesel generators throughout the less developed world and focusing on capturing methane emissions from landfills. And while we are involved in less-developed countries, we should jettison the idea that there needs to be a massive transfer of wealth from rich states to poor states to help stave off the negative effects of climate change. Instead, let's recognize that a flood or earthquake or hurricane is devastating regardless of the cause and focus on building more disaster resilient infrastructure. More importantly, wealthier societies are better able to handle disasters and thus the ultimate goal must be to increase the wealth of poorer countries and to do that poorer countries need cheap energy, which brings us back to the innovation goal. Last, the authors reject universal consensus and point out that 80% of all emissions, 85% of GDP, 80% of world trade and 2/3 of the world's population are in the G-20 nations. Those nations should get together and pick their strategy.I have written before (and no doubt will write again) that what business needs is guidance. Whether it is a conference of 193 parties, or a group of 20, there needs to be a roadmap on where climate change policy is going, so business can plan. I have not seen the analysis that calculates the economic loss caused by climate change policy paralysis. Undoubtedly it is huge. What national policymakers need to figure out at and after Cancun is whether the Kyoto process can work. If not, it is time to do something else.

McCARTER & ENGLISH CLIMATE CHANGE AND RENEWABLE ENERGY PRACTICE GROUP

The business case for the development of renewable energy projects, from biodiesel and ethanol to wind, solar, and distributed generation, is more compelling than ever as tax and regulatory incentives combine to attract investments. Emerging issues in environmental law and increasingly recognized principles of corporate social responsibility are encouraging public companies to voluntarily reduce greenhouse gas emissions, install clean energy alternatives, and invest overseas in projects under the Kyoto Protocol to respond to climate change concerns.